New Era For Western Gold Community

Since rallying from the $1142 area to about $1219, gold has retraced about half those gains.  Bloomberg reports that investor short positions are now at the highest levels since 2006.

That’s a snapshot of the latest COT report.  Incredibly, retail investor short positions on the COMEX, are now larger than their long positions! 

At the same time, savvy commercial traders (aka the “banksters”) are carrying a very modest net short position of less than 75,000 contracts (shorts minus longs). 

The average retail investor is highly leveraged, and can only withstand perhaps twenty dollars an ounce of price movement against their position before they get a margin call.  Clearly, the gold market window is open, for a violent short covering rally!

I did short gold as it surged above $1200, but I’m booking profits quickly now, as it trades under $1185. 

Because it is the ultimate asset, I’m always net long the gold market.  Shorting is best applied to gold as a tactical tool, rather than as a perceived holy grail.   

In 1980, I sold gold and silver near the very top of the market, after buying them in the early 1970s, but the nature of the precious metals markets is very different now.  Because of the long-term industrialization taking place in China and India, I don’t believe there will be any “final top” that needs to be called.  Simply put, gold is a much more solid asset than it was in the past.

Why is gold soft right now?  Well, most seasonal movements in gold relate to the ebb and flow of gold jewellery demand in India and Dubai (offshore India).  The first three weeks of March featured incredibly strong demand, but that has peaked for now.

I’m very pleased to see more respected bank economists focused on key events in China and India.  The Akha Teej (also called Akshaya Tritiya) festival in India takes place on April 20^th. Commerzbank is acutely aware of the substantial rise in demand (and thus price) that this key event will create in the gold market.

Also, as of tomorrow, Chinese mining companies will be allowed to import gold into China, to compete with the bullion banks.  That’s superb news, and I expect it to further reduce “yo-yo” action in gold, because jewellers will get more consistent supplies.

This seasonal chart for gold, courtesy of Dimitri Speck, shows that Commerbank economists are wise to focus on Akha Teej.  Gold has a long history of staging great rallies in April!

That’s the monthly GDX chart. 

That’s the monthly chart for DUST-NYSE.  While GDX fell from about $65 to about $16, DUST (which is a triple-leveraged bet against GDX) fell from about $23 to $18. 

If DUST can’t even rise while GDX is in a substantial downtrend, it is likely to be delisted or reverse-split repeatedly, if GDX mounts a serious rally.

I think it’s the dawn of a new era not just for the love trade, but for the entire Western gold community.  Rather than using amateur chart analysis to gamble in questionable items like DUST-NYSE and NUGT-NYSE, a new focus on great individual mining companies that are poised for upside action is rightfully starting to take centre stage in the community!

This is a very important chart.  It shows the relationship between mining exploration expenditures, discoveries, and production.  Note the green exploration spending line on the left side of the tables.  Despite spending vastly more money in the 2004 to 2007 period than in the 1990s, much less gold is being discovered.

Chindian jewellery demand forecasts look like the mirror image of the mine production chart; from 2016 forwards, demand should grow steadily for many years!

That’s the daily chart for Alacer Gold, on track to produce about 150,000 – 200,000 ounces of gold in Turkey, at an all-in sustaining cost of about $825 an ounce.  Turkey is traditionally the third or fourth largest gold market in the world. 

Just since November, investors could have used my Keltner line buy and sell signals to buy and sell this great stock three times in a row, with nice profits!  It’s in both the GDX and GDXJ ETFs, so there’s solid institutional interest.  The company’s main gold mine in Turkey has a 25 year mine life, and almost 4 million ounces in reserves! 

As a current investor “bonus”, the stock has surged over the past week, while gold has swooned.  It’s clear that the professional mine builders at Alacer Gold are likely to be creating great wealth for shareholders, long after questionable items like DUST have been delisted.

That’s the daily silver chart.  I view silver as the second greatest asset in world history.  As the love trade grows in dominance over the fear trade (Shanghai silver trading volume has already surpassed COMEX volume), I think silver will become less volatile. 

That diminished volatility should attract institutional investors to silver stocks.  It also means that while silver appears set to outperform gold, investors need to be open to a mild uptrend that lasts for decades, rather than wild price swings.

A lot of investors wonder about the impact of the US dollar’s rally, on the price of gold.  The huge rally in the dollar has had only minimal impact on the price of gold.  I agree with the WGC’s take on the situation, and I’m predicting that the dollar’s downside impact on gold will continue to diminish, until it becomes less worrisome than a fly. 

In my professional opinion, the US dollar will become “the ultimate gold call option”, as its ability to lower the price of gold on rallies disappears, but its implosion will create a massive spike in gold’s price. 

Gold is rallying as I complete today’s report, perhaps giving the Western gold community a mouth-watering appetizer of what Akha Teej and the new Chinese mining import rules will bring to the price, in April!

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